Taylor Wimpey's shares look oversold as the market gets the collywobbles.
The market's bungee jump over the last couple of weeks has left a number of blue-chip companies looking too cheap in my opinion. The cord is bouncing back today, but there are still quite a few big name shares looking good value.
All we can do as investors is to look at the baseline numbers and try to time our entry as best we can. On that score, finding lowly valued companies is like shooting fish in a barrel, but it's a time to be selective.
Amongst the sectors hardest hit, the banks and insurers look particularly good long-term value for those whose investing horizons extend beyond this year's World Cup.
Demolition work
Perhaps a more surprising candidate, though, is FTSE 250 homebuilder Taylor Wimpey (LSE: TW) whose shares have been partially demolished over the last couple of weeks along with so many others. They've dropped from 44p to their lowest level since December and stand at 36.4p as I write.
The company certainly isn't an out-and-out value candidate (year-end debt is expected to be about £700m and the company is loss-making) but it does display some value criteria and looks like an interesting investment at what may prove to be a long-term bargain price.
Is it illogical to be bearish on the valuations of UK property (as I am), but optimistic over the future of one of the country's biggest homebuilders?
Well yes -- but it all depends on the relative prices of the two. And on the latter, Taylor Wimpey looks too cheap after the sell-off.
Hard times
The company's AGM statement from a fortnight ago was something of a mixed bag. Management was concerned that the shortage of consented land will restrict recovery, but said it is well positioned to increase profitability as markets recover, having cut costs and given its strong order book and land bank. The trading environment remains difficult, but the company believes that strong levels of demand will continue to underpin the market.
Perhaps -- but at what price? In 2009, the builder built 10,186 homes in the UK at an average sale price of £160,000, 4,755 homes in North America at an average of £171,000 and 225 homes in Spain and Gibraltar at an average of £260,000.
At the last full count for 2009, the company made an operating profit of £43.3m on sales of £2.6bn, had net tangible assets of almost £1.5bn (47p per share), and reported that things were generally looking up. This only partially disguised the headline pre-tax loss before exceptional items of £96m, after a loss of £74.7m in 2008.
This was a good performance which resulted in the boss getting £1.7m in his pay packet, which caused something of a furore.
Profit in sight
The brokers don't expect to see a profit this year, but they do next, with consensus earnings of 1.48p pencilled hopefully in. They don't come much more cyclical than house-builders, and this has been one hell of a cycle. A couple of years ago, the company was paying almost nine times next year's expected earnings in dividends alone.
Today, the group is valued at £1.16bn. Three years ago when the George Wimpey and Taylor Woodrow merger was proposed, the potential group was effectively valued at £5.5bn -- and the company raised £510m along the way. How times change.
Whether the current price dip is a Warren Buffet "cigar butt" or a chance to buy good a good prospect at an unnaturally low price is a moot point, and depends largely on your investing timelines.
Taylor Wimpey is certainly one for the brave -- and probably for those with long-term investing horizons, but anything like a sustained recovery could see the shares do well.
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